© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-1

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-2 MANAGING MARKETING CHANNELS AND WHOLESALING C HAPTER

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-3 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 2.Distinguish among traditional marketing channels, electronic marketing channels, and different types of vertical marketing systems. 1.Explain what is meant by a marketing channel of distribution and why intermediaries are needed.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-4 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 3.Describe the factors and considerations that affect a company’s choice and management of a marketing channel. 4.Recognize how conflict, cooperation, and legal considerations affect marketing channel relationships.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-5 APPLE STORES: ADDING HIGH-TOUCH TO HIGH-TECH MARKETING CHANNELS

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-6 NATURE AND IMPORTANCE OF MARKETING CHANNELS What is a Marketing Channel of Distribution?  Marketing Channel Marketing Channel

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-7 FIGURE 15-1 FIGURE 15-1 Terms used for marketing intermediaries

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-8 FIGURE 15-A FIGURE 15-A Structure of marketing channels

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 15-9  Functions Performed by Intermediaries NATURE AND IMPORTANCE OF MARKETING CHANNELS Value Created by Intermediaries Transactional Function Logistical Function Facilitating Function  Consumer Benefits From Intermediaries

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-2 FIGURE 15-2 How intermediaries minimize transactions

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-3 FIGURE 15-3 Marketing channel functions performed by intermediaries

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Concept Check 1. What is meant by a marketing channel? A: A marketing channel consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Concept Check 2. What are the three basic functions performed by intermediaries? A: Intermediaries perform transactional, logistical, and facilitating functions.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Marketing Channels for Consumer Goods and Services  Direct Channel Direct Channel  Indirect Channels Indirect Channels CHANNEL STRUCTURE AND ORGANIZATION

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-4 FIGURE 15-4 Common marketing channels for consumer goods and services

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Marketing Channels for Business Goods and Services  Industrial Distributor Industrial Distributor  Agent CHANNEL STRUCTURE AND ORGANIZATION

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-5 FIGURE 15-5 Common marketing channels for business goods and services

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL STRUCTURE AND ORGANIZATION Electronic Marketing Channels Direct Marketing Channels Multiple Channels and Strategic Channel Alliances  Dual Distribution Dual Distribution  Strategic Channel Alliances Strategic Channel Alliances

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-6 FIGURE 15-6 Representative consumer electronic marketing channels

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide MARKETING NEWSNET Nestlé and General Mills— Cereal Partners Worldwide

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide A Closer Look at Channel Intermediaries  Merchant Wholesalers Merchant Wholesalers CHANNEL STRUCTURE AND ORGANIZATION General Merchandise (Full-Line) Wholesalers Specialty Merchandise (Limited-Line) Wholesalers  Cash and Carry Wholesalers  Rack Jobbers  Truck Jobbers  Drop Shippers or Desk Jobbers

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-7 FIGURE 15-7 Functions performed by independent wholesaler types

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide A Closer Look at Channel Intermediaries  Agents and Brokers CHANNEL STRUCTURE AND ORGANIZATION Manufacturer’s Agents (or Representatives) Manufacturer’s Agents (or Representatives) Selling Agents Selling Agents Brokers Brokers  Manufacturer’s Branches and Offices Manufacturer’s Branch Office Manufacturer’s Sales Office

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide  Corporate Systems CHANNEL STRUCTURE AND ORGANIZATION Corporate Vertical Marketing System Forward Integration Vertical Marketing Systems and Channel Partnerships  Vertical Marketing Systems Vertical Marketing Systems Backward Integration

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-8 FIGURE 15-8 Types of vertical marketing systems

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL STRUCTURE AND ORGANIZATION Wholesaler-Sponsored Voluntary Chains Retailer-Sponsored Cooperatives Vertical Marketing Systems and Channel Partnerships  Contractual Systems Contractual Vertical Marketing System

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL STRUCTURE AND ORGANIZATION Vertical Marketing Systems and Channel Partnerships  Contractual Systems Franchising Franchising  Manufacturer-Sponsored Wholesale Systems  Manufacturer-Sponsored Retail Franchise Systems  Service-Sponsored Franchise Systems  Service-Sponsored Retail Franchise Systems

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL STRUCTURE AND ORGANIZATION Vertical Marketing Systems and Channel Partnerships  Administered Systems Administered Vertical Marketing Systems  Channel Partnership Channel Partnership

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Sherwin-Williams and H&R Block What type of vertical marketing system is used by each?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Concept Check 1. What is the difference between a direct and an indirect channel? A: A direct channel is one in which a producer of consumer or business goods and services and ultimate consumers or industrial users deal directly with each other whereas an indirect channel has intermediaries that are inserted between the producer and consumers or industrial users and who perform numerous channel functions.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Concept Check 2. Why are channels for business products typically shorter than channels for consumer products? A: Business channels are typically shorter because business users are fewer in number, tend to be more concentrated geographically, and buy in larger quantities.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Concept Check 3. What is the principal distinction between a corporate vertical marketing system and an administered vertical marketing system? A: A corporate vertical marketing system combines successive stages of production and distribution under a single ownership. An administered vertical marketing system achieves coordination by the size and influence of one channel member rather than through ownership.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL CHOICE AND MANAGEMENT Factors Affecting Channel Choice and Management  Environmental Factors  Consumer Factors  Product Factors  Company Factors

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-B FIGURE 15-B Factors affecting channel choice and management

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide American Eagle Outfitters What new marketing channel opportunities are created by the Internet?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin MARKETING NEWSNET Wrigley Markets a Controlled Substance in Singapore—Chewing Gum Slide 15-36

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL CHOICE AND MANAGEMENT  Target Market Coverage Channel Design Considerations Intensive Distribution Intensive Distribution Exclusive Distribution Exclusive Distribution Selective Distribution Selective Distribution

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL CHOICE AND MANAGEMENT  Satisfying Buyer Requirements Channel Design Considerations Information Convenience Variety Attendant Services  Profitability

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Jiffy Lube and PETCO What buyer requirements have been satisfied?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin WEB LINK Visit an Apple Store to See What All the Excitement is About Slide 15-40

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL CHOICE AND MANAGEMENT Global Dimensions of Marketing Channels

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Schick Why the market share leader in Japan?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL CHOICE AND MANAGEMENT  Conflict in Marketing Channels Channel Conflict Channel Conflict Channel Relationships: Conflict, Cooperation, and Law Vertical Conflict Horizontal Conflict  Disintermediation Disintermediation

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL CHOICE AND MANAGEMENT  Cooperation in Marketing Channels Channel Captain Channel Captain Channel Relationships: Conflict, Cooperation, and Law

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-C FIGURE 15-C Sources of influence for a channel captain

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide ETHICS AND SOCIAL RESPONSIBILITY ALERT The Ethics of Slotting Allowances

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide CHANNEL CHOICE AND MANAGEMENT Channel Relationships: Conflict, Cooperation, and Law Dual Distribution  Legal Considerations Legal Considerations Vertical Integration Exclusive Dealing Tying Arrangements Refusal to Deal Resale Restrictions

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FIGURE 15-9 FIGURE 15-9 Channel strategies and practices affected by legal restrictions

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Concept Check 1. What are the three degrees of distribution density? A: intensive; exclusive; selective

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Concept Check 2. What are the three questions marketing executives consider when choosing a marketing channel and intermediaries? A: The three questions are: (1) Which will provide the best coverage of the target market? (2) Which will best satisfy the buying requirements of the target market? (3) Which will be the most profitable?

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Concept Check 3. What is meant by exclusive dealing? A: Exclusive dealing exists when a supplier requires channel members to sell only its products or restricts distributors from selling directly competitive products. It is specifically prohibited under the Clayton Act when it lessens competition or creates monopolies.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FINDING A FRANCHISE FOR YOU GOING ONLINE

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Visit the Franchise.com website, and click on the “Franchise Buyer” link. Which franchise opportunities fit you? Going Online

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Visit the International Franchise Association website, and click on the “Resource Center” link. Then, click on the “News” link. What are the current trends in franchising? Going Online

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide TURNING EXCLUSIVE DISTRIBUTION ON ITS HEAD SUPPLEMENTAL LECTURE NOTE 15-1

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide HOW THE MARKETING OF BLACK PEARLS CREATED A BLACK EYE FOR ELIZABETH ARDEN SUPPLEMENTAL LECTURE NOTE 15-2

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide GOLDEN VALLEY MICROWAVE FOODS: THE SURPRISING CHANNEL VIDEO CASE 15

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide VIDEO CASE 15 Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide VIDEO CASE 15 Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Visit ACT II’s website at and examine the assortment of products offered today. Are (a) the assortment or (b) the packaging related to Golden Valley’s distribution channels or the segments they serve? VIDEO CASE 15 Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Use Figure 15–4 to create a description of the channels of distribution being used by Golden Valley today. VIDEO CASE 15 Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Compared to selling through the non-grocery channels, what kind of product, price, and promotion strategies might Golden Valley use to reach the grocery channel more effectively? VIDEO CASE 15 Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide What special marketing issues does Golden Valley face as it pursues growth in global markets? VIDEO CASE 15 Golden Valley Microwave Foods

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide FASTENAL COMPANY: BRINGING RETAIL PRINCIPLES TO THE WHOLESALE MARKET APPENDIX D CASE D-15

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide APPENDIX D CASE D-15 Fastenal

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide What are the significant marketing and sales opportunities available to Fastenal Company given that it has 1,400 stores located throughout North America? In contrast, Fastenal’s major national competitors have stores only in major metropolitan areas and as a result it uses its Internet and catalog divisions to provide sales to customers who are not able to visit its stores in person. APPENDIX D CASE D-15 Fastenal

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Describe three specific things that Fastenal has done to respond to the unique buying requirements of the customers in its three markets. APPENDIX D CASE D-15 Fastenal

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide A homeowner who plans to work on a weekend home improvement project comes to the counter late Friday afternoon after spending some time looking at the product displays and asks the store manager the following question—“I have been looking at your cordless drills and I was wondering why all of your drills are so much more expensive [her exact words] than any of the drills I saw advertised in a recent Home Depot ad in the newspaper?” What do you think the store manager should say in response to her question? APPENDIX D CASE D-15 Fastenal

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Marketing Channel A marketing channel consists of individuals and firms involved in the process of making a product or service available for use or consumption by consumers or industrial users.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Direct Channel A direct channel is a marketing channel where a producer and ultimate consumers deal directly with each other.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Indirect Channels Indirect channels are marketing channels where intermediaries are inserted between the producer and consumers and perform numerous channel functions.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Industrial Distributor An industrial distributor is an intermediary that performs a variety of marketing channel functions, including selling, stocking, delivering a full product assortment, and financing.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Electronic Marketing Channels Electronic marketing channels employ the Internet to make goods and services available for consumption or use by consumers or business buyers.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Direct Marketing Channels Direct marketing channels allow consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Dual Distribution Dual distribution is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Strategic Channel Alliances Strategic channel alliances is a practice whereby one firm’s marketing channel is used to sell another firm’s products.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Merchant Wholesalers Merchant wholesalers are independently owned firms that take title to the merchandise they handle.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Manufacturer’s Agents Manufacturer’s agents are agents who work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Also called manufacturer’s representatives.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Selling Agents Selling agents are agents who represent a single producer and are responsible for the entire marketing function of that producer.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Brokers Brokers are independent firms or individuals whose principal function is to bring buyers and sellers together to make sales.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Vertical Marketing Systems Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Franchising Franchising is a contractual arrangement between a parent company (a franchisor) and an individual or firm (a franchisee) that allows the franchisee to operate a certain type of business under an established name and according to specific rules.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Channel Partnership A channel partnership consists of agreements and procedures among channel members for ordering and physically distributing a producer’s products through the channel to the ultimate consumer.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Intensive Distribution Intensive distribution is a level of distribution density whereby a firm tries to place its products and services in as many outlets as possible.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Exclusive Distribution Exclusive distribution is a level of distribution density whereby only one retail outlet in a specific geographical area carries the firm’s products.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Selective Distribution Selective distribution is a level of distribution density whereby a firm selects a few retail outlets in a specific geographical area to carry its products.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Channel Conflict Channel conflict arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Disintermediation Disintermediation is channel conflict that arises when a channel member bypasses another member and sells or buys products direct.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide Channel Captain A channel captain is a channel member (producer, wholesaler, or retailer) that coordinates, directs, and supports other channel members.